After a review of much of the last 2,600
years, we have concluded that we are not the historic anomaly that we
surmised at the beginning of the journey. In fact, we are simply
repeating the same cycles and mistakes that all of our ancestors have
made before us. Every culture throughout history has done exactly what
we are doing now. The only difference is that this time it involves the
entire planet.

As we read history, paper
money was not designed to be an asset. It was an intermediary between
sellers of goods and services. A seller might not have an immediate
purchase in mind, so receiving a paper receipt that could be redeemed at
a later time, and even at another location, was both efficient and much
safer than receiving payment in gold or silver.

In our era, these receipts
have taken many forms. Even the cash in our pockets is a derivative.
In technical terms, it is a zero-coupon, perpetual obligation of the
issuing government. In essence, the writing on the paper currency is
promising “somebody owes you something, someday”.

The post-WWII monetary system began at
Bretton Woods, New Hampshire. It began to unravel in the middle of the
1960s, but the mortal blow was struck by President Nixon with the
suspension of dollar/gold convertibility. It has certainly been a long
“suspension”.

Almost every ugly chart
relating to the growth of debt and money can trace it’s roots to 1971.
The evidence is incontrovertible. The value of the ancient form of
receipts has been sliding ever since. The slide has not been linear
over that 40-year period, but it certainly went into free-fall 12 years
or so ago.

In the past, rulers created
money out of something considered to hold value, often gold and
silver. Seignorage was the right of kings to make a profit on that
money. Unlimited seignorage was impossible as supplies of gold and
silver came and went, and it was expensive to mint the coins.

With the use of paper and
now electrons to create money, we now have unlimited seignorage. Money
is created out of nothing, and you can see how it has been abused in the
post-1971 charts. The abuse is accelerating on a massive, global
scale. Cash and other derivatives have replaced our markets. Profits
were to be made on creating and trading derivatives, not providing real
goods and services. The real aspects of our economies continue to
function, but the derivatives dwarf the size of the real global economy.

Much has been written about the historic
confluence of our population growth coming together with the exponential
endpoint of our resources. The same can be said for our money. Our
resources are finite. The ability of our planet to sustain a population
is finite.

We are now witnessing the
exhaustion of our savings and real assets and our ability to sustain an
exponential growth in money and derivatives. Unlimited derivates are
hitting the proverbial brick wall, and their collapse will destroy
everything based upon them, it is just history. This cycle has been
repeated time and time again.

For our portfolios, the message is clear.
Get out of paper assets that can be destroyed by the unlimited
seignorage, and convert them into real assets. The end of the fiat
money system will come swiftly, and perhaps overnight. It cannot be too
far off at this point.

Changes are coming, but it
doesn’t mean the world will come to an end. But financial regime
changes do result in a massive transfer of wealth from those who own
paper assets, to those that own real assets. Historically, gold and
silver are traditional safe havens.

According to Jim Sinclair, the following data is true. I haven't confirmed it, but Sinclair has been the most prescient pundit on precious metals I have followed, so he is credible--at least from my vantage point.

EXECUTIVE ORDERS ISSUED…Teddy Roosevelt 3 FDR 11 in 16 years Truman 5 in 7 years Ike 2 in 8 years Kennedy 4 in 3 years LBJ 4 in 5 years Nixon 1 in 6 years Ford 3 in 2 years Carter 3 in 4 years Reagan 5 in 8 years Bush 3 in 4 years Clinton 15 in 8 years George W. Bush 62 in 8 years Obama 923 in 3 1/2 years !

When some South African platinum mine workers went on strike, I predicted other platinum mine workers would follow suit, shutting down the mines. I also predicted the strikes would spread to gold mines. Both predictions materialized, and while some of the platinum mines have returned to operation, it is the gold mines that are now shutting down. This has been another catalyst for higher gold prices.

The Fed continuously destroys the value of the dollar, in a futile attempt to stimulate exports. All this does is create food inflation domestically--and globally. This, in turn, causes riots in other parts of the world, where food represents up to 85% of a household budget in the poorest of countries.

Ergo, the Fed is causing social unrest worldwide with its continuing dollar devaluation. The rest of the world knows this--that's why the impoverished are burning American flags in the streets. It's not just about overthrowing evil dictator regimes. It's about putting food on the table.

Only the American public is oblivious to this, distracted by the machinations of the war on terror propaganda.

Aahhh, the unintended blowback, er...consequences of a currency war. The Fed's uber easy monetary policies have made ALLIES of China and South Korea, as they look to diversify AWAY from the USDollar with bilateral trade. This is yet another nail in the coffin of the USDollar as the global reserve currency.

In previous eras, when a country had the cojones to jawbone down the USDollar as the international trade settlement currency, US foreign policy dictated that said banana republic (or OPEC member, whichever was appropriate) would be declared a rogue terrorist country, and some incidental event would conveniently trigger justification for invasion. The natives are getting restless? Just declare them freedom fighters and help them overthrow whichever current evil regime is in place.

However, China is unabashedly signing bilateral trade agreements with US allies, as well as our enemies in every continent, which means, the US is powerless to do anything about the dollar's demise as the "petrodollar."

Sounds benign enough. So what's the problem? Ummm, if and when the USDollar were to lose said reserve currency status, every single country holding dollars will have no need for them, and will be dumping them en masse. The result will be soaring consumer prices domestically, crushing the US economy in the process.

It appears the cost/benefit ratio for QE is asymmetric. The upside is limited (a temporary reduction in bond yields), while the potential downside is gargantuan (a hyperinflationary economic collapse).

Wednesday, September 26, 2012

The Chicago Fed, led by Charles Evans, is probably the most dovish of
the 12 regional Fed branches. In other words, not only does Evans want
QE, he wants much more of it. Here is their latest full write up on
asset bubbles, and I included an excerpt from their summary.

"We still do not have a good definition of an asset bubble; and we
still do not know how to identify them, what causes them to grow or
burst, or what their welfare implications are."

WTF? They don't know how to identify an asset bubble--yet, they insist
perpetual printing money will solve it? Did it occur to them that
endless printing of more dollars CAUSES asset bubbles to form in the
first place? Apparently, a PhD in Economics from the University of
Chicago causes brain paralysis.

Now that the big institutional investment firms are declaring a secular bull market in gold (better to be 11 years late than never), where were they in late 2008 when gold plunged below $700, post-Lehman flush?

Normally, if the consensus leans one way, I would tend to lean to the other, as conventional wisdom in markets is almost always wrong. The article's tone is bullish for gold, so as a contrarian, one would consider exiting. However, the first sentence is wrong in one key detail with this declaration:

As predicted, the worker strikes in South African platinum mines spread to other platinum mines--and gold mines. And as predicted, said commodity market prices drifted lower, even while imminent supply constraints intuitively infer higher prices. Marginally economic mines have been shut down due to artificially suppressed prices, further dampening supply.

Demand for precious metals is soaring, but the supply fundamentals may be the driver for higher prices going forward.

I just had a phone conversation with a friend today on Fibonacci math, centered around wave theory and physics.

Coincidentally, and as predicted, each iteration of QE is yielding a shorter half-life of diminishing returns. Some posit we are on the negative return trajectory, as the Fed piles on more debt on top of previous debt. Kinda like a $hit $andwich.

This is not speculation--this is exactly what China is doing--accumulating gold in order to have the yuan backed by gold. This will insure the yuan's soundness, and increase its viability as a currency for international settlements.

Let's assume you the reader are a progressive liberal, and while you're finally convinced debt and deficits do matter, you still believe in an activist Fed--a central bank which deploys massive quantitative easing, in an attempt to stimulate the economy. The ol' "pile on more debt short-term to induce sustainable economic growth long-term" argument.

You ignore the warnings from the conservatives, the so-called deficit hawks. Damn the Hoover Institute from Stanford University. Reagan's trickle-down, supply-side economics were a colossal failure in your mind.

Full speed ahead! What we need is QE to infinity to stimulate growth, growth, growth!

Here's a wet splash across the face from everybody's favorite Democratic former President Bill Clinton:

Richard Fisher, the CEO of the Dallas Federal Reserve Bank, told a
Harvard Club audience in New York tonight that not a single official of
the central bank or any of the regional banks or their staffs, has the
foggiest idea what is troubling the U.S. economy and what policy, if
any, can get the economy “back on course.”

Fisher was the sole member of the Board of Governors to vote against the
introduction of QE3, an open-ended promise from Chairman Ben Bernanke
to continue buying some $85 billion of bonds and mortgages until
economic growth recovers sufficiently to create significantly more jobs
for the millions still unemployed.

Fisher made a worrisome point
when he reported that he asked CEOs whether they would spend more money
on “job-creating expansion” if the cost of borrowing was reduced by 25
basis points or 1/4 of 1%– one of the stated goals of Bernanke’s
decision to do QE3. The answer; 9 of every 10 CEOs said No!!!

The
outspoken central banker shocked the audience by starkly declaring;
“Nobody on the committee, nor on the staffs at the Board of Governors at
the 12 banks, really knows what is holding back the economy. Nobody
really knows what will work to get the economy back on course.”

I call BS. I believe some know the destructive consequences of debt monetization, one of extend and pretend. They just can't speak the truth until they are out of office.

In the words of veteran analyst Jim Grant, the Fed has evolved
well beyond its origins as a lender of last resort and not much else,
and now is fully engaged in the business “of steering, guiding,
directing, manipulating the economy, financial markets, the yield
curve…”

It is a wholly specious argument to suggest that the creation
of trillions of dollars / pounds / euros / yen out of thin air will
not ultimately be inflationary; it is like saying that storing an
infinite amount of tinder next to an open flame does not constitute a
fire hazard.

Admittedly, the explicit inflationary impact of historic
monetary stimulus will not be fully visible until those trillions
are circulating in the economy in private exchanges between buyers
and sellers– rather than squatting ineffectively in insolvent
banks’ reserves. But financial markets are nothing if not capable
of anticipating future trends.

Investors, traders, speculators– call them what you will– are already
weighing up the probability of a reduction in future purchasing power;
the prices of alternative money such as gold and silver, as
denominated in unbacked fiat currency, are already responding.

Financial repression, of course, is all about wealth
transfer. Inflationism is the textbook response to a crisis of too much
debt (even if you were the over-borrowed entity that triggered the
crisis in the first place).

But one of the most grotesque ironies of our time is that
western government debt– the asset class which is objectively the
least attractive (as well as the proximate cause of the world’s
financial problems)– is also the most expensive.

But just because sheep-like bond fund managers are providing a
real time lesson in the perils of agency risk does not mean we have
to follow them down the primrose path.

Cash, most forms of bonds, and fixed annuities all look like
poor prospects for the years ahead. Productive real estate,
defensive equities of businesses with pricing power, gold and silver all
look like better alternatives.

The last Fed chairman with the guts to do the right thing for
the economy rather than just its banks, Paul Volcker, has rightly
observed that “monetary policy is about as easy as it can get”. Another
round of QE “will fail to fix the problem”. That is in part because the
Fed, along with its international peer group, is now the
problem… masquerading as the solution.

The initial reaction to news of fake, tungsten-filled gold bars for most people is one of trepidation--and a market sell-off would not be surprising. I blogged about counterfeit gold bars showing up in the UK and German assayers <here> and <here> a couple years ago, and the media outlets treated fake gold bars as they would authentic gold bars--with scorn.

However, upon further reflection, the truth of the matter is this: the actual amount of gold in vaults, both private and official, is smaller than expected, probably MUCH smaller. Given that assumption (it's actually not just an assumption, since by definition, counterfeit gold bars signal someone or someone's thought they possessed real gold, and discovered they had very little), expect turmoil and volatility within the precious metals complex going forward.

The LBMA is the only source of "good bars" of gold, and even top experts can be fooled by counterfeit gold bars. With a backdrop of counterfeit gold bars, and even good bars that quite possibly have been re-hypothecated, the unofficial and official inventory of gold is probably vastly overstated.

By extension, when supply is shorter than expected, what conclusion does one come up with regarding price of said "commodity"? The big bullion banks have allegedly been running a version of a Ponzi scheme by manipulating and suppressing the prices of precious metals for years, if not decades. Their persistent naked and concentrated short positions have artificially knocked down the prices of gold and silver, rendering economic mining of said metals uneconomic. This only further constrains the supply side of the equation. Again, what are the implications on price?

Eventually, the manipulators of the paper exchanges will get overrun by demand for physical metal. The big shorts will be unable to stem the tide because demand from emerging market central banks and citizens will overwhelm the short-term shenanigans. When inventory of the metals dissipates, physical prices will soar due to delivery only going to the highest bidders.http://www.nypost.com/p/news/business/fake_gold_hits_nyc_ECXVP5WQOvYwMVTi8CoHRL

Saturday, September 22, 2012

As big institutions get wind of the paper chase collapsing, there will
be a rush to hard assets--and hard currencies backed by hard assets
(China and Russia come to mind). Their currencies may soar, while other
fiat currencies tank. Of course, this will hurt their economies also,
as Chinese exports become too rich, so they will devalue in blowback
fashion--in what Jim Rickards penned a currency war.

This is the pre-avalanche phase. It only takes one snowflake to trigger
the avalanche, but no one knows which flake will cause it. Is it
China vs. Japan over the Senkaku islands? Is it Israel vs. Iran? Or
China/Russia rushing to the defense of Iran, while the US defends
Israel? What about Syria? Yemen? Libya? Sudan? Saudi Arabia? Spain?
Greece? Italy? France? the UK? Germany exiting the Euro? or JAPAN?
Percentage-wise, Japan's public debt is 10 times worse than Greece's.
I'm going to bet the yen is about to lose its safe haven status.

With an increasingly complex and fragile global banking system, anything
can trigger a cascading collapse. It was subprime mortgage bonds
securitized against some tranche of homes in California, Nevada,
Arizona, or Florida that triggered the last crisis. While there are
multiple crisis points globally, the catalyst could be some catastrophe
in some unexpected place like South Africa, Tunisia--or Egypt.

"It was the best of times, it was the worst of
times; it ws the age of wisdom, it was the age of foolishness; it was
the epoch of belief, it was the epoch of incredulity; it was the season
of Light, it was the season of Darkness; it was the spring of hope, it
was the winter of despair; we had everything before us, we had nothing
before us; we were all going directly to Heaven, we were all going the
other way." - Charles Dickens

As the concept of a gold standard gains traction in mainstream media outlets, the price of gold will be at much higher levels. We're in the 4th inning of this decade-long bull market in precious metals time-wise, but the hockey stick curve is just beginning, trajectory-wise.http://www.nysun.com/editorials/germany-eyes-gold-standard/87997/

By the way, Germany may have large gold reserves, but 90% of it is stored in the US, at the New York Fed, specifically. When the $hit hits the fan, good luck to the Krauts for taking delivery.Even if the gold is there (and there's no guarantee it is), it could quite possibly have been re-hypothecated many times.

Holocaust observers continue to believe it could never happen again. What they don't understand is when a country's economy collapses, all bets are off. Nazi Germany didn't just arrive out of thin air. It was a byproduct of the collapse of the Weimar republic and its paper currency in 1923.

Yes, it is obvious. The CME and the powers-that-be favor certain commodities and asset classes. Keep driving equities up, so the Fed's strategy to catalyze "animal spirits" and create a "wealth effect" (even though it is false prosperity), so people will open up their wallets again (even though they are broke). Suppress bond yields to artificially prop up bond prices--and demand for said bonds (even though their "safe haven" status is questionable at best).

For a while now, I have been expecting a coordinated, global central
bank action that would seek to print more money out of thin air, or "QE"
(quantitative easing), as it is now called. Now we have two of the
most important central banks, that of the U.S. (the Federal Reserve) and
in Europe (the ECB) having committed to open-ended, limitless QE.

Since the very beginning of my public writings, I have leaned heavily
towards the path of inflation, by which I mean money printing or its
electronic equivalent, because even a cursory review of history will
show that leaders have always chosen a little money printing today and
the possibility of inflation tomorrow over the immediate pain of having
to live within their means or with the consequences of their poor
decisions.

That was just a fancy way of saying 'humans will be humans,' and
while our technology has advanced tremendously over the past few
decades, our DNA blueprints are virtually identical to those found in
people living 50,000 years ago. History can tell us much.

Our current predicament has its roots way back in the early 1980s,
when something changed in our collective psyches that allowed us to
abandon thrift and savings in favor of spending and borrowing.

While the Fed can wrap this magic act in all sorts of covering
language about dual mandates, maximum employment, and price stability,
the simple fact remains that money printed out of thin air cannot, has
not, and will not ever lead to prosperity. How could it? It arises
without any effort at all, no work performed, no goods transformed or
lives improved, no land planted and tended well, no services rendered,
and no capital formed. It is just conjured into existence.

It is just new money tossed after bad debts, with both remaining to
work their different insidious effects on the economy and our daily
lives. If printed money could lead to prosperity, trust me – some
culture would have worked it out long ago, because people every bit as
clever and determined as those alive today (and with the same DNA
software installed) have tried it again and again.

If it could work, then we should just print every household up a nice
$1,000,000 check each year and let everybody stay home, take vacations,
and drive nice cars.

How does all this end? Like it has every other time in history, with
a final destruction of the currencies involved. That's my best guess.

This is why I view all of the QE efforts to date, and those that will
certainly follow, not only with suspicion but as a series of
unforgivably narrowly-conceived efforts that will combine into one of
the most colossal failures ever experienced by modern man.

1) the Argentinian government is accused by the IMF of fudging their official inflation data. Ummm, that's what governments do--lie about inflation--ALL governments, some better than others.

2) the IMF is just a cabal of banks, more interested in returns on sovereign debt they own--than the sovereignty of said countries (see Greece). They want to maintain the status quo--the illusion of "riskless" returns on sovereign bonds which, in reality, are fraught with risk.

In essence, you have two corrupt organizations taking swipes at each other, with the less powerful one (Argentina) taking it in the shorts when it comes to raising capital in global markets.

The take away message is the US is Argentina on steroids, with debt levels orders of magnitude larger than any other country--in the history of mankind.

Actually, not only did the Fed re-deploy QE, but so have the ECB, the UK, and China. Japan is just late in joining the party. Oh that's right, not true--Japan has been printing yen out of thin air for over 20 years running.

China is actively considering "using its power as Japan’s
biggest creditor with $230bn (£141bn) of bonds to "impose sanctions on
Japan in the most effective manner" and bring Tokyo’s festering fiscal
crisis to a head." I.e., dump Japan's bonds en masse.

Should this stunning recommendation be enacted, not only would it be
the first time in world history that insurmountable credit is used as a
weapon of retaliation, it would mark a clear phase transition in the
evolution of modern warfare: from outright military incursions, to FX
wars, to trade wars, culminating with "bond wars" which could in the
span of minutes cripple the entire Japanese fiscal house of cards still
standing solely due to the myth that unserviceable debt can be pushed
off into perpetuity (as previously discussed here).

Great, let's blame tapped out or even broke consumers for our economy's malaise. Pinhead Ivy League economists really don't have a clue on basic household budgeting. Uummm, when job prospects are poor to non-existent, when the costs of fuel, utilities, food, education, and healthcare rise incessantly, yes, households will hunker down. Or does the Fed suggest consumers return to running up their credit cards to spend money they don't have? Isn't that what got us into this mess in the first place?

Liquidity provided must be paid back and if the banks and nations that
receive it do not provide structural changes, reduce their deficits,
decrease their borrowings then, ultimately, the gods of chaos are
unleashed. At this point it is no longer the interest that is paid but
the return of capital that must be paid that becomes the number one
issue. Liquidity has its price and I submit to you today that the time
is fast approaching when a world awash in liquidity overwhelms the
barriers and the dike is breached. The applause of today may become the
tears of tomorrow if the current course continues.

Monday, September 17, 2012

Chinese banks and
companies looking to seize steel pledged as collateral by firms that
have defaulted on loans are making an uncomfortable discovery: the metal
was never in the warehouses in the first place.

As defaults have risen in the world's largest
steel consumer, lenders have found that warehouse receipts for metal
pledged as collateral do not always lead them to stacks of stored metal.
Chinese authorities are investigating a number of cases in which steel
documented in receipts was either not there, belonged to another company
or had been pledged as collateral to multiple lenders, industry sources
said.

In London and New York regarding gold and silver paper markets, this is dubbed re-hypothecation. To the layman, it's called fraud.

Thanks to Kitty for finding this. The credit ratings agency Egan-Jones better watch its back. If history is any indication, the US government will sue Egan-Jones for downgrading US Treasury debt. Can't let the truth get in the way.

China will likely surpass India as the world's largest buyer of gold this year for the first time in recent history, but Indians continue to purchase gold as a hedge against currency debasement. The festivals for which gold is purchased for is incidental. For centuries, Indians have innately understood gold's store of value against the insidiousness of a government's printing press.

Anybody who believes this headline should have their head examine. Mitt Romney has already declared that Bernanke would be out of a job if Romney is elected President. Hence, Bernanke wants Obama to win at all costs so Ben can hang on to his job. Ergo, Bernanke will do whatever it takes to stimulate the economy in the short term--even if it will destroy the economy long-term. Enter unlimited QE.

If you've been reading this blog for any length of time, the recurring theme of currency debasement is old news. However, to accommodate new readers, I am providing a link to another article about the days of the USDollar as the global reserve currency being numbered.

So says a new report from the World Economic Forum
which found the U.S. slipping in dozens of areas compared with just a
few years ago. Perhaps most troubling is the conclusion that since 2008,
the United States has slid from No. 1 in the world in "global
competitiveness" to No. 7 this year. Out-ranking America are: Switzerland, Singapore, Finland, Sweden, the Netherlands and Germany. Sure, it's just a number. But the WEF's ranking takes into account a
broad range of factors, from debt to corruption to regulation to red
tape to education to health care.

"I
don't think that's what the Commodity Futures Trading Commission had in
mind" with its requirement that brokers keep customer money separate
from their own, he said.

Futures brokers are required to keep
customers' funds in dedicated accounts to protect them from being used
for anything other than client business.

However,
Thursday's ruling suggests that brokerages can use customer funds to
pay off other creditors, Sentinel trustee Fred Grede told Reuters.

"It does not bode well for the protection of customer funds."

Worse,
Grede said, is that the ruling suggests that a brokerage that allows
customer money to be mixed with its own is not necessarily committing
fraud.

Sentinel allegedly pledged hundreds of
millions of dollars in customer assets to secure an overnight loan at
Bank of New York Mellon, leaving the bank in a secured position but
Sentinel's customers out millions.

Customer
funds were allegedly moved from the protected accounts to other
accounts so they could be used as collateral for loans to Sentinel's own
trading operations.

The appeals
court said that "perhaps the bank should have known that Sentinel
violated segregation requirements" but agreed with the district court's
earlier ruling that "such a lack of care does not rise to the level of
the egregious misconduct" needed to reprioritize a claim.

"That
Sentinel failed to keep client funds properly segregated is not, on its
own, sufficient to rule as a matter of law that Sentinel acted ‘with
actual intent to hinder, delay, or defraud' its customers," U.S. Circuit
Judge John D. Tinder wrote in the ruling.

In other words, if the brokerage uses investor funds as collateral to gamble with its own funds, loses it all, and collapses, the client is ass'ed out. And it's all legal. This will not only happen. It has already happened, with the collapse of Sentinel, MF Global, and Peregrine. And economists and government officials don't understand why retail investors are exiting these already rigged markets.

Any healthy political and financial system would have broken the fraud-based
system and dismantled the failed banks en masse in an orderly fashion. One institution
stopped this from happening: the Federal Reserve. Instead of allowing a failed system
to collapse and establish a new one based on prudent lending, market-set interest rates,
competitive banks and transparent regulatory structure, instead we have a failed
system that has become even more politically powerful even as its Fed-backed excesses have
increased systemic fragility.

I've posited the US true debt burden is higher than $100 trillion. The official national debt exceeded $16 trillion recently. Laurence Kotlikoff says it's actually $222 trillion here. This latest article splits the middle, declaring our financial burden at $70 trillion. When the number of digits gets that large, does it really matter?

LeMetropoleCafe’s Friday wrap-up included quotations from a remarkable
Bloomberg interview with the famous bond fund manager Bill Gross of
Pimco which expressed a preference for holding gold: “Gold cannot be
reproduced. It can be taken out of the ground at an increasing rate, but
there is a limited amount of gold. There has been an unlimited amount
of paper money over the past 20 years to 30 years…

“Central banks got out of the gold trade a few years ago. Just recently,
they are coming back into that market…I think for the most part it is
not a crowded trade yet even though the price has accelerated in recent
quarters and recent years.”

These views, while quite normal for a guerilla gold bug, would have been
career-ending heresy for an orthodox Wall Street not so long ago.

Another LeMetropoleCafe appearance was by fabulously successful
macro-hedge fund manager Ray Dalio of Bridgewater Associates (via his
latest client letter): “Gold is primarily an alternative to fiat
currency and a storehold of wealth.

“The main advantage that gold has over other currencies is that it can’t
be printed…deleveragings strongly favor shifts from financial assets
into gold and other tangible assets.”

Sunday, September 9, 2012

However this is a misunderstanding of the difference between spending
by private individuals and political spending. Government is incapable
of being run like a business. Enterprise is based off the principle of
satisfying voluntary patrons with no guarantee of success. Even in a
hampered market economy where corporations receive special privileges
via the state, the consumer remains the kingmaker. On the other hand,
government receives all income through coercive measures. Profit and
loss accounting is of little concern when losses are borne by the
taxpayer and profits are immediately devoted to political projects.
Should the public Treasury run low, tax collectors can be sent forth to
shakedown the unpresuming citizens.When it comes to rational economic calculation, public officials need
not worry about spending money effectively. To attribute increased
revenue being taxed away from the private economy with robust growth
misconstrues how wealth is created. Government doesn’t create wealth;
it merely transfers it between parties. Similarly, it only consumes
capital that has already been produced. Because society existed before
the state and because the state functions off of what it pilfers from
society, public expenditures do not add to net wealth. In order for one
tax dollar to be spent, it has to be first taken from the pocket of a
taxpayer. Whatever subjective desires could have been achieved by that
dollar become overridden to satisfy the whims of the political class.The fact that the economy didn’t stagnate under higher taxes during
Clinton’s term in office doesn’t demonstrate that taxation has no
harmful effects. Economies aren’t closed experiments where one variable
can be introduced and the effects observed. There are far too many
factors at play. Concrete theories based off certain truths must be
applied in such a way to interpret date and wring sense out of it. Good
economic conditions weren’t a result of heightened taxes but instead
prevailed in spite of them. While the productivity gains from the newly
widespread use of personal computers and the internet had a positive
effect on growth, another factor often goes unmentioned. The later-half
of the 1990s may be looked back upon as golden years but much of the
gains experienced by the stock market were not representative of organic
growth. A significant amount of investment came not from natural
causes but from monetary manipulation by the Federal Reserve.Like the decade that preceded the Great Depression, productivity
gains which drove consumer prices downward masked the amount of monetary
stimulus being pumped into the economy. When the bubble collapsed,
Greenspan once again turned to the printing press to bail himself out.
Instead of causing a bubble in the tech sector, the burst of inflation
made its way into the housing sector. By the time the housing bubble
popped, Greenspan left the chairmanship of the Fed to great acclaim.
Milton Friedman writing in the Wall Street Journal
declared Greenspan had “set the standard” for Fed chairmen in
maintaining stable prices and growth. In actuality, he and his
colleagues of the Federal Open Market Committee were responsible for the continuation of the boom-bust cycle and current Great Recession.Today, Clinton still takes credit for Greenspan’s manipulated boom.
His supporters on the left love nothing more than to point at his
presidency as vindication of the backwards theory that higher taxes
equal more growth. Clinton wasn’t a policy wonk; he was a politician who dipped into the Social Security trust fund to give an appearance of balancing the budget while the national debt still climbed higher.

The Fractal Gold chart work is a direct comparison of Gold, today, to
the late 70's Gold Parabola. Thus, "timing" is taken directly from the
late 70's cycle, with price targets created from a combination of the
late 70's Gold price and different technical analysis techniques. We
developed a price target back in 2006/ 2007 for Gold to reach the
$10,000 to $12,000 range during this Gold Bull. Anything above that
range would mean that the "Stagflation" comparison to the late 70's was
exceeded and "Hyper-inflation" would become a real possibility.

I told you this fractal analysis was bat$hit-crazy. But who am I to say they are wrong?

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Some of our best ideas come to us during the most inopportune times: waking up, in the shower, driving along a country road...my blog is an attempt to capture these epiphanies, whether whimsical or serious in nature. These blogs are heavily weighted toward financial matters and/or innovation (e.g. disruptive technology)--normally boring subject matter. But when sprinkled in with meanderings about human nature, I hope to shed some light on oft-misunderstood topics--without being dogmatic. Enjoy and perhaps learn a thing or two from my moments of clarity.

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